14
ECONOMY
THURSDAY, MARCH 23, 2017 |
STOCK MARKET
FINANCE
S
WINNERS FOR THE WEEK
STOCK
Evertec Inc.
OFG Bancorp
First BanCorp
Triple-S Management Corp.
52-wk
SYMBOL LOW
EVTC 12.98
OFG
6.26
FBP
2.52
GTS
16.60
52-wk
HIGH
18.60
14.48
7.05
27.70
PRICE
3/10
16.25
12.00
5.94
17.17
PRICE
3/17
16.70
12.15
5.98
17.18
LOSERS FOR THE WEEK
STOCK
Popular Inc.
52-wk
SYMBOL LOW
BPOP 26.49
52-wk
HIGH
45.96
PRICE
3/10
40.90
PRICE
3/17
40.77
U.S. STOCKS
CHANGE
0.45
0.15
0.04
0.01
DOW
S&P
NASDAQ
T
EUR/USD
T
-0.21%
-0.36 %
-0.26%
W
0.54%
0.73%
0.63%
T
1.0653
1.0604
W
1.0602
1.0735
U.S. Budget & P.R. Debt Service Impacted
FEDERAL RESERVE TO
CONTINUE RATE HIKES
As anticipated, the Federal Reserve Bank raised its rates a quarter of a percent during its March
15 meeting, with Fed Chair Yellen
indicating that the market should
expect additional rate action.
The economic forecasts have
not changed much since the last
rate hike in December and suggest that the pace for future rate
hikes would be gradual. The Fed
has confidence the U.S. economic
recovery is robust and is resistant
to market shocks. The economic
conditions today are more favorable than in December, with the
Dow Jones hovering at 21,000
points, the 10-year U.S. Treasury
note yield is lower, the job rate is
increasing; the dollar is weaker;
and corporate bond spreads are
narrower than before. Do not be
surprised if we see two to three
more rate increases in 2017. Moving on to Puerto Rico, the impact that these rate hikes has on
our economy is initially small;
however, business will hold off
U.S. FUELS AVERAGE PRICE
Regular Gasoline
Premium Gasoline
Diesel
F
-0.10%
0.13%
0.23%
TH
1.0732
1.0766
F
1.0763
1.0738
OPEN
CLOSE
fiscal responsibility and an effort
to implement specific revenue
enhancements and expenditure
reductions. The goal is to return
Puerto Rico to fiscal stability and
economic growth. In particular,
the fiscal plan attempts to bridge
the $67 billion budget deficit from
Think Strategically:
IPOs, Fed Raises Rates
BY FRANCISCO RODRÍGUEZ-CASTRO
[email protected]
TH
-0.07%
-0.04%
-0.04%
Initial Public Offerings for Week
Company
Ticker
Exchange
Price Range
Shares
Date
Alteryx
AYK
NYSE
$12-$14
9,000,000
3-20-2017
Valeritas Holdings
VLRX
Nasdaq
$9-$11
6,000,000
3-20-2017
investments, hiring, capital expenditures and other initiatives
with the expectation that more
rate hikes are to come.
PRESIDENT TRUMP’S FIRST
BUDGET PROPOSAL
President Donald Trump submitted his first proposed budget
for fiscal year 2018, which begins Oct. 1 of this year, and it reflects his government-spending
priorities and fulfills many of
his promises.
As reported, the budget provides increases of $54 billion to
defense, care for veterans and
homeland security and reduces
domestic spending by $54 billion,
including transportation, justice,
agriculture, housing, community
development and environmental protection. The proposal is
considered by many to be “extra
$2.323
$2.816
$2.564
USD/JPY
M
1.0671
1.0654
OPEN
CLOSE
CHANGE
-0.13
M
-0.10%
0.14%
0.25%
skinny” because it is more abbreviated than the full budget proposals that we can expect to see
in subsequent years. New presidents usually submit a lean budget in their first year of office.
Presidential budget proposals, like the one put forth this
week, are not written in stone
since Congress ultimately will
write its funding bills for the
government. The big takeaway
is that the budget seems to be
consistent with mainstream
Republican priorities.
P.R. UPDATE: FISCAL PLAN
& DEBT SERVICE IMPACTED
As reported, the Fiscal Oversight Board approved Gov. Rosselló’s fiscal plan on March 13,
in New York; among the major
items in the approved fiscal plan
is an increased commitment to
the prior administration’s plan
and estimates more than $7.9 billion in cumulative cash flow for
debt service over a 10-year period.
Several economists argue that
this plan is not achievable. There
are many hurdles and metrics to
be overcome before anyone can
“claim victory.” The modified fiscal plan, certified on March 13,
provides for debt-service payments of $800 million, which fall
short of the amount required by
an average of $2.551 billion during
the next 10 years. Presuming this
is the total available for debt service, bondholders may face a haircut of more than 75% on the value
of their bonds. Some had proposed
that the government implement a
moratorium on principal for five
to 10 years, which would have given the government $5.8 billion to
$11 billion in cash flow.
M
T
W
TH
F
114.80 114.86 114.72 113.35 113.30
114.88 114.75 113.38 113.31 112.72
FINAL WORD
As an advocate for the reduction
in size of our government and its
budget, as well as the elimination
of any government involvement
in activities the private sector can
perform better, we support the
widespread utilization of PublicPrivate Partnerships to monetize
noncore businesses or enhance
agencies’ operations. The government must cut expenses and
reduce its size and focus while
meeting the fiscal plan. However,
what is disconcerting is the probability that the more than 60,000
local bondholders may face haircuts on their bonds of more than
75%, which is a destruction of
wealth of significant proportions.
Puerto Rico has a very long road
ahead.
Francisco Rodríguez-Castro,
president & CEO of Birling
Capital with over 25 years
of experience, has been a key
executive in government,
global, multinational and
public companies as well as
a key corporate adviser to
multiple entities in a diverse
array of market segments. He
has participated in structuring
over $10 billion in municipal
finance, corporate, commercial,
asset-based, P.R. Industrial,
Tourism, Educational, Medical &
Environmental Control Facilities
Financing Authority (Afica),
and mergers & acquisitions
transactions.